July 17, 2023

Inflation Cools and Bonds Love It

The U.S. Bureau of Labor Statistics released their Consumer Price Index (CPI) for the month of June that showed overall inflation increased by 0.2%, which came in lower than estimates of 0.3%. Year-over-year, inflation declined from 4% to 3%, which was lower than its estimates as well. CPI Inflation has declined sharply from its peak, which was at 9.1%, and continues to make progress every month since that peak.

Core CPI, which strips out food and energy prices, increased by 0.2%, which was slightly lighter than estimates. Year over year, Core CPI decreased from 5.3% to 4.8%, which was also lighter than estimates of 5%.
The U.S. Bureau of Labor Statistics also released their Producer Price Index (PPI) for the month of June and this showed that overall producer inflation increased by 0.1%, which was lower than expectations. Year-over-year, PPI inflation fell from 0.9% to only a whopping 0.1%. This was also much lower than estimates of 0.4% and the lowest level since August 2020 when it was actually negative. What this report shows is that essentially, there is really no wholesale inflation from last year.

The Core rate, which strips out food and energy prices, rose 0.1%, which again came in lower than estimates. Year over year, core inflation declined from 2.6% to 2.4%, which was cooler than estimates of 2.6%.

Bottom line – Both the Consumer Price Index and Producer Price Index inflation readings are improving, and the producer inflation readings are at extremely low levels and can lead to lower consumer inflation as producers can either pass on the savings to the customer or capture more margin. As inflation dissipates the bond market draws attraction from investors. When investors purchase more bonds, it equates to lower long-term interest rates. When these two reports were released, 30-year bonds reacted favorably and interest rates improved.

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By: Jon Iacono
A Family

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